The University of Vermont became the thirty-fourth college in the nation this week to commit to the Sustainable Endowment Institute’s Billion Dollar Green Challenge, agreeing to establish a revolving fund to finance on-campus energy efficiency improvements.

And what a commitment it was.

Thanks to a resolution by the university’s Board of Trustees that passed Saturday, UVM will earmark $13 million for the fund, making it the largest challenge to date. Harvard’s $12 million green energy revolving fund had been the largest.

The Billion Dollar Green Challenge was launched in Oct. 2011 by the Sustainable Endowments Institute and 15 partners. The program invites colleges to invest a total of one billion dollars in energy efficiency upgrades delivered through self-managed revolving funds. To date, colleges have committed nearly $80 million in total.

The concept underlying revolving green energy funds, which are growing in popularity, is that the funds replenish themselves with savings accrued by reduced energy spending, allowing institutions to make a long-term commitment to energy efficiency and environmental protection that is financially sustainable and even attractive.

“The number of green revolving funds has more than quadrupled since 2008,” he said. “A major incentive is the financial benefit. Our survey found a median annual return on investment of 32 percent.”

Vermont governor Peter Shumlin took notice of UVM’s decision, applauded it and hoped it would have a ripple effect.

“Vermont has long been a leader in energy efficiency, and revolving green energy funds are an important way to continue the progress our state has made in energy conservation,” Shumlin said. “I applaud UVM’s decision to establish such a robust fund and hope the decision inspires other schools, businesses and institutions like local and state government to try this approach. The rewards in cost savings and reduction in greenhouse gas emissions make this a true win-win.”

Monies in UVM’s fund will come from cash on hand from tuition payments and other revenue sources, which is normally invested for short periods in low-risk financial instruments before it is spent on operating expenses such as wages, utilities and supplies.

The $13 million represents less than 10 percent of the total cash UVM typically has at its disposal.

“We think investing our cash in energy efficiency projects, which have a better rate of return than many of our current investments, is a fiscally and environmentally sound way to put our money to work,” said Richard Cate, UVM’s vice president for finance and administration.

UVM’s financial commitment to the fund is as large as it is, Cate said, because there are so many potential candidates for energy upgrades on campus, projects that could lead to substantial cost savings in the mid and long term. The program also underscores the university’s deep commitment to the environment, Cate said.

At Friday’s Board of Trustees meeting, Cate shared examples of potential projects the new fund could finance. They included installing demand-controlled ventilation systems in buildings, similar to those in the newly renovated Aiken Center; replacing external lighting across campus with energy efficient LED fixtures; and upgrading ventilation and lighting controls in older facilities like the Waterman Building.

The university has established two major criteria for projects to be eligible for financing, Cate told the board. They must have a payback period of no more than seven years and cost $3 million or less. The university is setting a goal of a five percent return for the investment. Cate expects upgrades could begin as early as next fall.

UVM is partnering in the effort with both Efficiency Vermont, the statewide energy efficiency utility operated by the non-profit Vermont Energy Investment Corporation, and the Burlington Electric Department (BED), UVM’s electricity provider.

While the university is developing its own prioritized list of projects it will target, it will rely on BED and Efficiency Vermont to verify the selection and its assumptions about cost and payback period. BED may also assist with energy audits and will provide financial incentives for any new energy-reducing equipment the university needs, lowering its cost.

“We are very happy to be working with two Vermont institutions that have national reputations for their expertise and innovative approaches to energy efficiency and conservation,” Cate said. “We hope our decision helps other Vermont institutions become aware of this important tool for saving energy and reducing greenhouse gas emissions.”

“With today’s announcement, UVM is establishing itself as a national leader in using innovative green energy financing to save money and save energy,” said Jim Merriam, director of Efficiency Vermont. “The revolving loan fund is a very effective tool for making investments in energy efficiency, and Efficiency Vermont looks forward to partnering with UVM and other Vermont institutions to take advantage of this innovative approach.”

“UVM and BED have been strong partners in energy efficiency for the past twenty years, and the establishment of UVM's innovative Green Revolving Loan Fund will greatly enhance the ability to leverage deeper energy efficiency savings on the campus benefitting all ratepayers,” said Chris Burns, BED’s director of energy services.

Between 1992 and 2012 UVM spent about $8.6 million on energy reduction projects in partnership with BED with paybacks of around seven years.

The Sustainable Endowments Institute was founded in 2005 as a special project of Rockefeller Philanthropy Advisors. The Cambridge-based nonprofit organization has pioneered research and education to advance sustainability in campus operations and endowment practices. For a list of the partners in the Billion Dollar Green Challenge, including Efficiency Vermont, see greenbillion.org/about/.